One recently introduced investment option is the first home savings account (FHSA), a tax-free registered account that’s designed to help first-time home buyers save for a down payment. An account holder can contribute up to $8,000 per year to an FHSA, up to a lifetime maximum of $40,000 (double that if you’re part of a couple and you’re both first-time home buyers). As long as these funds are eventually used to purchase your first home, deposits and withdrawals are tax-free. (Most registered accounts allow for one or the other, but the FHSA allows for tax sheltering on contributions and withdrawals.) This includes any income earned from interest, dividends or capital gains. The FHSA was launched in Canada in April 2023, and it’s currently available through Fidelity Investments and other financial institutions.
The Canadian government already had a few tools and programs for first-time home buyers, including the Home Buyers’ Plan (HBP) and First-Time Home Buyer Incentive (FTHBI), so you may be wondering how the FHSA fits in. We’ve got answers to your FHSA questions, including how first-time buyers can use these programs together.
How the FHSA and HBP work together
The FHSA is a fairly new financial product, but the Home Buyers’ Plan has been available to Canadians since 1992. The HBP is essentially a loan from your RRSP without any taxation or early withdrawal penalties. Here’s how it works.
If you’ve been saving money in an RRSP (registered retirement savings plan), you can “borrow” funds to put towards a down payment on the purchase of a qualifying home. The HBP withdrawal limit recently increased from $35,000 to $60,000, as proposed in the 2024 federal budget. The new limit applies to withdrawals made after April 16, 2024. (For more updates on the HBP, visit the government’s HBP webpage.)
A “qualifying home” includes most residential properties such as condos, townhomes, semi-detached houses and detached homes, which can be new builds or previously owned. You must be a first-time home buyer, which is defined as someone who hasn’t owned a home in the past four years, and also be a resident of Canada. If you’re using the HBP to purchase your first home with a spouse or common-law partner, you also cannot have lived in a home owned by your partner during this four-year period.
Once you’ve withdrawn money from your RRSP under the HBP, you have up to 15 years to complete your HBP repayment, starting from the end of the repayment grace period (recently changed from two years to five).
While initial reports suggested that the FHSA could not be used in conjunction with the HBP, the government has since clarified that these programs can be used together (as long as you meet all of the conditions for each program). So, if you’ve got $60,000 available in your RRSP and $25,000 saved in an FHSA, you can put $85,000 towards the down payment of your first home with no impact on your income tax. You’d just have to re-contribute the borrowed amount to your RRSP within the next 15 years to fulfill your HBP repayment obligation.
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